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Concerns this week about the PC industry turned in a day to perplexity over bellwether stock Intel. On Tuesday, the longtime leader in the microprocessor market missed its numbers, blaming in part falling demand for desktop computers. But on Wednesday, results from smaller rival Advanced Micro Devices beat analysts’ wildest expectations.

“We have been surprised – blown away is more like it – by the extent of the company’s gains,” said Merrill Lynch, as AMD reported that fourth-quarter sales of its microprocessors grew 35 per cent over the previous quarter and earnings per share reached 45 cents – well ahead of consensus estimates of 25 cents.

Intel reported just 2 per cent sales growth and predicted an 8 per cent fall in revenues in the current quarter – three points more than would be seasonally normal.

“The weakest Q4 revenue result and Q1 outlook since the bursting of the bubble,” wrote the analysts.

Intel had blamed a shortage of chipsets – such as video and sound chips – that accompany its processors for losing perhaps a point of market share to AMD, and it spoke of a drop in demand for desktop PCs in a “difficult December”.

But Intel’s problems seem to be more than one bad month. Persistent inventory issues have forced it to rely on third-party suppliers for chipsets. Its processors remain hotter and more expensive to run than those of AMD.

While Intel still has more than 80 per cent of the market for the dominant “x86” processors, AMD reported its share grew to 15.3 per cent in the fourth quarter from 11.9 per cent in the third and 9.6 per cent a year ago.

“We’ve been following the microprocessor companies for eight years and haven’t seen this rapid a shift in competitive momentum before,” said Joe Osha of Merrill Lynch.

Banc of America’s Sumit Dhanda questioned Intel’s bellwether status: “We think the unprecedented competitive pressure Intel is facing from AMD suggests that Intel may no longer be the proxy it once was for the overall semiconductor group.”

Intel does appear to be undergoing a painful mid-life transition. It is seeking out new markets, with its Digital Health and Digital Home divisions set up last year, and new partners – with Apple starting to use its processors and a joint venture established with Micron to produce flash memory. In mid-year, it will launch its next-generation processor architecture in a bid to take back the technology lead conceded to AMD.

Charlie Glavin, analyst at Needham & Co and a former Intel employee, says it is hard to identify enough high-margin, high-volume markets to replace the lucrative PC and server ones that have fuelled Intel’s success since the 1980s. “It’s 40-year-old man syndrome – its metabolism is slowing and it’s still remembering the glory years.”

Many in the industry feel it is only a matter of time before Intel’s favourite squeeze, Dell, puts aside its concerns about AMD’s ability to deliver in volume and has an affair. Kevin Krewell, editor-in-chief of the Microprocessor Report, says this will probably happen this year in the server market with AMD’s superior Opteron chip. “Opteron would seem to be a no-brainer, you don’t need as much volume in the server space compared to desktops so it would be fairly easy to supply enough chips.”

What seems equally possible is Intel using its greater muscle in a price war. “That looks like it’s going to be here in 2006,” says Mr Glavin.